WEEKLY SYNOPSIS: 10/06/2022

Currency Map:

Brent Crude closed at USD 123.65 VS prior week month of USD 123.50. Gold closed at USD 1875.Nifty closed at 16204  vs prior week close of 16584. 10 Year G-SEC Yield closed at 7.51%.

Major developments: USDINR traded in the 77.61-77.87 range last week and closed at 77.84 as against prior week close of 77.63. Rupee declined 0.27% w/w. EUR declined 0.92% w/w and GBP declined 0.35% w/w against Rupee. Indian benchmark Equity index declined 2.29% w/w. 10 Year G-SEC Yield closed at 7.51%. 1-year fwd premia is at 3.70% p.a.

USDINR climbed steadily higher, buffeted by PSU banks selling of USD. RBI has allowed Rupee to weaken gradually. Considering Friday’s developments in US (higher than expected CPI data), Rupee could open weaker on Monday. USDINR could cross 78 and RBI may sell USD on Monday.

RBI increased repo rates by 50 bps to 4.9%. Inflation is expected to average 6.7% in FY23 and growth projection has been retained at 7.2%

In 2022-23 fiscal, FII’S have sold 59281 Cr of Equities till date and have sold Rs 7298 Cr of debt till date. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

FX reserves stands at USD 601.1 bn.

USDINR has supports at 77.48/77.27/77.15. Resistance is expected near 78.20.

Global developments: USD continued to maintain its bullish mode, aided by strong CPI data. US inflation accelerated to a fresh 40-year high in May, a sign that price pressures are becoming entrenched in the economy. That will likely push the Federal Reserve to extend an aggressive series of interest-rate hikes CPI climbed 8.6% y/y and 1% m/m.

FOMC meeting is the key focus for this week. Fed will hike rates by 50 bps and may indicate the necessity to front load rate hikes, even if it means hurting growth.

German 10-year bund yield jumped to close at 1.52%, highest level since 2014. UK 10-year gilt yield also rose to 2.4475, highest since 2014 too. In the US, 10-year climbed to 3.167%. 

Euro did not get support from ECB meeting, despite ECB pledging to end QE and start hiking rates from July. ECB left interest rates unchanged as widely expected. That is, the main refinancing rate, marginal lending facility rate and deposit rate are held at 0.00%, 0.25% and -0.50% respectively. However, it explicitly said, “the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting.” Besides, ECB said is expects to “raise the key ECB interest rates again in September”. The size would depend on the updated medium-term inflation outlook by then. “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting,” it added. Beyond September, “a gradual but sustained path of further increases in interest rates will be appropriate.”

In the new economic projections, annual inflation will hit 6.8% in 2022, then decline to 3.l5% in 2023. GDP growth is projected at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024 (revised down slightly for 2022 and 2023, but up for 2024).

Eurozone GDP grew 0.6% qoq in Q1, revised up from prior estimate of 0.3% qoq.

OECD warned on Wednesday that the world economy will pay a “hefty price” for the war in Ukraine including weaker growth, stronger inflation, and persistent damage to supply chains.

Dollar index is set to resume its uptrend after the recent correction. Global Equities melted on fears of stagflation.

US FOMC meeting, retail sales and UK MPC meeting are the key focus events for this week.

Currency range: USDINR: 77.48/77.27/77.15(support), 78.20 (resistance), EURINR:80 (support)/ 83.50/84.25 (Resistance), GBP/INR: 96-98.50, JPY/INR:.58-63

Suggestions: USD exports can be covered partially at 78.20+. EURINR receivables can be covered. GBPINR exports can be covered.

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